The American Bankers Association and the undersigned state trade associations are pleased to comment on the joint Notice of Proposed Rulemaking issued by the Office of the Comptroller of the Currency (OCC) and the Federal Deposit Insurance Corporation (FDIC) that would modernize the regulations that implement the Community Reinvestment Act of 1977 (CRA).

Banks care deeply about the vibrancy and vitality of their communities, and they support the goals of the CRA statute. In fact, banks provide more than $100 billion in capital each year to low- and moderate-income (LMI) communities. Banks also supply financial products and services that provide important economic opportunities for individuals, families, and small business owners.

Unfortunately, outdated implementing regulations undermine the CRA’s objectives. For several years, there has been broad, bipartisan agreement among policymakers, bankers, and consumer and community advocates that the CRA regulatory framework needs to be modernized to reflect how technology has transformed the delivery of financial products and services. There is also wide recognition that CRA examinations are unpredictable and inconsistent.

We are grateful for the OCC’s and the FDIC’s (the agencies) work to bring the CRA regulations into the 21st Century. Developing a proposed rule was not easy—the needs of communities vary widely, bank business models are not monolithic, and technology has forever changed consumer preferences for accessing financial products and services. These are complex issues. While we have several serious concerns about the proposed rule, we remain optimistic that it is possible to improve the effectiveness and administration of the CRA framework in a manner that will benefit banks, communities, and consumers alike.

Our comments, observations, and recommendations are not confined to views expressed by institutions regulated by the OCC and the FDIC. Rather, our input represents the perspective of the entire banking industry, and we expect that our recommendations will be reviewed and considered by all three of the banking agencies, including the Board of Governors of the Federal Reserve. Furthermore, this letter reflects the input of banks with a wide range of business models, asset sizes, and geographic locations.

I. Summary of the Comment

We strongly support the agencies’ efforts to modernize CRA. The proposed rule is a significant step toward achieving this goal, and we are grateful to the agencies for the considerable work that has gone into the modernization effort. Nevertheless, we have significant concerns regarding the substance and complexity of the proposed performance measurement framework as well as the substantial costs that would be required to implement it. Accordingly, we request that the agencies refrain from finalizing this aspect of the proposal pending further study. We also request that the agencies finalize those elements of the proposal that have broad support, such as clarifications regarding qualifying activities, the establishment of a qualified activities list, and the creation of a pre-clearance process. In addition to these specific recommendations, our comments address the following themes:

Durability. A modernized CRA regulatory framework must be long-lasting. Modernized regulations that are clear and calibrated appropriately will avoid the need for subsequent amendments, adjustments, and clarifications. Multiple, successive changes—by current policymakers or future ones—would be costly, counterproductive, and would result in less certainty and predictability than exists today. Implementation of broad CRA reform will be expensive, and therefore, reforms must be workable and durable so that resources are not redirected from community reinvestment toward implementing multiple revisions to CRA. Regulations that have broad support will avoid the risk of being unwound by Congress or future regulators.

Interagency Regulations. The agencies should continue to pursue a modernized regulatory framework that can be adopted by all three Federal banking agencies. An interagency final rule will help to ensure that modernization stands the test of time. In addition, failure to act in coordination would yield undesirable results—including perpetuating confusion and inconsistency—which would be contrary to the objectives of the modernization effort.

Testing and Analytics. CRA performance measures must be well-grounded in data. We offer a number of suggestions that the agencies could incorporate into revised performance measures that should be tested extensively—and piloted—prior to finalization. All testing and pilot programs must include a diverse set of banks based on size, geography, specialization, local economic conditions, and other relevant considerations.

Interconnectedness. The proposed changes to the assessment area concept and the proposed performance measures would transform the way that banks administer and are evaluated on their CRA programs. Prior to issuing a final rule, the agencies must take particular care to ensure that CRA performance measures are calibrated appropriately in light of the multiple changes contemplated in the proposal. The preamble does not describe the extent to which the agencies analyzed the cumulative aspect of the proposed changes.

Balance Sheet Approach. The proposal’s heavy reliance on a bank’s balance sheet to measure CRA performance would be highly complex and would not give adequate CRA value to a variety of activities that are meaningful to communities and LMI individuals, such as selling loans into the secondary mortgage market, syndicating low-income housing tax credits, and providing volunteer service.

Diversity of the Banking System. Tailoring should continue to be part of the CRA regulatory framework. However, certain aspects of the proposed performance measurement system do not take into account bank business models, areas of specialization, and unique community characteristics. We recommend that the final rule reflect the diversity of the banking system, including by (1) permitting Small and Intermediate Small Banks to opt out of the General Performance Standards; (2) adjusting the Small Bank and Intermediate Small Bank thresholds to $500 million and $2.5 billion;(3)permitting wholesale and limited purpose banks to continue to be examined according to a community development test; and (4) making improvements to the strategic plan process to make the option more accessible for all banks.

Ratings System. We have several concerns with the proposed CRA ratings system and recommend that the agencies develop a ratings framework that is more flexible and does not include pass/fail components.

Data Burden. The proposed data collection, recordkeeping, and reporting requirements would create costly, ongoing data requirements that are considerably more complex than existing CRA reporting mechanisms (See Appendix A, Summary of Data Reporting Requirements Under the CRA Proposal). The proposed requirements are not compatible with the way bank systems are structured and reflect a fundamental misunderstanding of the burdens that will be imposed by the required information technology and systems changes as well as additional work to ensure data integrity. Prior to adopting a final rule, regulators should form an interagency taskforce of regulators and bankers with specialized, in-depth expertise in bank data systems, CRA regulations and reporting, HMDA, and Call reporting. This taskforce should be charged with developing data reporting requirements that support a more objective regulatory framework while (1) taking into account the diversity in the U.S. banking system and (2) working to minimize unnecessary data costs on banks.

Assessment Areas. While we appreciate the agencies’ work to address the digital revolution and its impact on banking, we do not support the proposal’s creation of deposit-based assessment areas. Among other things, deposit-based assessment areas would exacerbate CRA hot spots and CRA deserts.

Transition. The agencies should provide two years for banks to implement the data collection, recordkeeping, and reporting changes associated with CRA modernization. It will be particularly important for the agencies to provide industry training and support regarding any new rules as well as a series of case studies illustrating how any final rule would apply to sample banks. Examples should include a variety of business models, specialization, geography, and number of assessment areas. Regulators should also provide electronic copies of all formulas and calculators to be used by banks and examiners.